INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES WASHINGTON, D.C. In the matter between. TOTO COSTRUZIONI GENERALI S.P.A.

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INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES WASHINGTON, D.C

Representing the Claimant Mr. Bechara S. Hatem

In the matter between

TOTO COSTRUZIONI GENERALI S.P.A. (Claimant)

and

THE REPUBLIC OF LEBANON (Respondent)

(ICSID Case No. ARB/07/12)

DECISION ON JURISDICTION

Members of the Tribunal Professor Hans van Houtte

Mr. Alberto Feliciani Mr. Fadi Moghaizel

Secretary of the Tribunal Ms. Aissatou Diop

Representing the Respondent Mr. Nabil B. Abdel-Malek Hatem, Kairouz, Moukheiber and Messihi

Law Firm

Nabil B. Abdel-Malek Law Offices

Date of Dispatch to the Parties: September 11, 2009

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1. On April 12, 2007, the International Centre for Settlement of Investment Disputes ("ICSID" or the "Centre") received a request for arbitration (the "Request") dated March 19, 2007, from Toto Costruzioni Generali S.p.A. ("Toto") against the Republic of Lebanon ("Lebanon"). Toto is a company incorporated under the laws of Italy, registered at the commercial register of the Chamber of Commerce of Chieti.

2. The Request invoked the ICSID arbitration provisions contained in the Agreement between the Italian Republic and the Lebanese Republic on the Promotion and Reciprocal Protection of Investments (the "Treaty") which was signed on November 7, 1997, and entered into force on February 9, 2000.

3. In accordance with Rule 5 of the ICSID Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings (the "Institution Rules"), the Centre acknowledged receipt of the Request on April 12, 2007, and on April 13, 2007, transmitted copies thereof to Lebanon and its Embassy in Washington, D.C.

4. In the process of reviewing the Request, the Centre addressed a letter dated May 21, 2007, to Toto asking for clarification on the date on which the alleged dispute arose. The Claimant responded on May 25, 2007, specifying that the dispute arose in June 2004. Subsequently on July 3, 2007, the Centre registered the Request as supplemented by the letter of May 25, 2007, pursuant to Article 36(3) of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the "ICSID Convention"). On the same day, the Centre notified the parties of the registration of the Request and invited them to proceed without delay to constitute an arbitral tribunal, in accordance with Institution Rule 7.

B. Constitution of the Tribunal

5. On June 8, 2007, Lebanon appointed Mr. Fadi Moghaizel, a Lebanese national, as arbitrator. By letter of July 27, 2007, the Centre informed Lebanon that it could not proceed with

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Mr. Moghaizel's appointment in view of Rule 1(3) of the Rules of Procedure for Arbitration Proceedings (the "Arbitration Rules") according to which the co-national of a party to a proceeding cannot be appointed as an arbitrator by a party without the agreement of the other party to the dispute. On August 21, 2007, Toto appointed Mr. Alberto Feliciani, an Italian national, as arbitrator, and proposed that it would not object to Lebanon's appointment of Mr. Moghaizel as a co-national of Lebanon provided that Lebanon does not object to Toto's appointment of Mr. Feliciani as a co-national of Toto. On September 24, 2007, Lebanon confirmed that it had no objection regarding Mr. Feliciani's appointment. On September 27, 2007, the parties filed a joint letter invoking Article 37(2)(b) of the ICSID Convention and appointing Professor Hans van Routte, a Belgian national, as the third, presiding arbitrator. On October 1, 2007, the Centre asked the parties to clarify whether Professor van Houtte's appointment was by the two party-appointed arbitrators, reflecting the method of constituting the Tribunal agreed by the parties, or by another method and, if so, to indicate which one. The parties informed the Centre by joint letter of October 16, 2007, that the appointment of the third arbitrator was by the two appointed arbitrators. Thus, the Centre contacted the two party-appointed arbitrators who, on October 19, 2007, confirmed their appointment of Professor van Routte as the third arbitrator.

6. All three arbitrators having accepted their appointments, the Centre informed the parties, pursuant to Arbitration Rule 6( 1 ), of the constitution of the Arbitral Tribunal and the commencement of the proceedings as of October 30, 2007, with Mr. Ucheora Onwuamaegbu, and later Ms. AYssatou Diop, serving as Secretary.

C. Written and Oral Proceedings

7. By joint letter of November 9, 2007, the parties proposed Paris as the venue of the proceedings. On November 20, 2007, the Tribunal, after consulting with the ICSID Secretariat, scheduled a first session with the parties for December 13, 2007, at the World Bank European Headquarters in Paris, France. By joint letter of December 6, 2007, the parties communicated their agreement on certain matters identified in the provisional agenda for the first session, which the Secretary had circulated in preparation for the first session.

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8. The first session took place as scheduled. Participating were:

Members of the Tribunal

1. Professor Hans van Houtte, President 2. Mr. Alberto Feliciani, Arbitrator 3. Mr. Fadi Moghaizel, Arbitrator ICSID Secretariat

4. Mr. Ucheora Onwuamaegbu, Secretary of the Tribunal (by video conference from Washington, D.C.)

5. Mr. Bechara S. Hatem, Counsel, Hatem, Kairouz, Moukheiber and Messihi Law

Firm

6. Mr. Hadi Slim, Professeur de Droit, Consultant en Droit du Commerce Lebanon

7. Mr. Nabil B. Abdel-Malek, Counsel, Nabil B. Abdel-Malek Law Offices

9. At the session, the parties reiterated their agreement on the matters indicated in their joint letter of December 6, 2007, and reached an agreement on the remaining aspects of the proceedings, including bifurcation of the jurisdiction and merits phases, and a schedule for the submission of written pleadings on jurisdiction. All conclusions were recorded in the Minutes of the first session, which were signed by the President and Secretary of the Tribunal and circulated to the parties and other members of the Tribunal on January 15, 2008. The Minutes were subsequently amended at items 15 and 20, and re-circulated on February 27, 2008.

10. The following calendar was tentatively agreed for the preliminary phase of the proceedings:

• Lebanon to file its Memorial on jurisdiction by February 29, 2008;

• Toto to file its Counter-Memorial on jurisdiction by April 30, 2008;

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• Lebanon to file a Reply on jurisdiction by June 30, 2008;

• Toto to file a Rejoinder on jurisdiction by August 31, 2008;

• A pre-hearing conference call to take place at the beginning of October 2008; and

• A hearing for the examination of witnesses and/or experts, if any, or for oral arguments on jurisdiction to take place on October 16 and 17, 2008, in Paris.

11. In accordance with the schedule, the parties filed their submissions on the agreed dates, except Toto which filed its Rejoinder two days early, on August 29, 2008.

12. On September 8, 2008, the Centre invited the parties to submit items they wished to include on the agenda for the pre-hearing conference. On September 25, 2008, the parties submitted a response on the basis of which the Secretary prepared and circulated a provisional agenda on October 1, 2008. The Tribunal held a pre-hearing conference by telephone with the parties on October 3, 2008. During the pre-hearing conference, the Tribunal asked the parties to submit a synthesis of the agreed facts relating to jurisdiction, which the parties did on October 9, 2008. Before the conclusion of the pre-hearing conference, the parties reached an agreement on all the substantive, procedural, logistical, and administrative matters listed on the agenda circulated in advance of the pre-hearing conference. The parties' agreement was recorded in the Minutes of the pre-hearing conference which were circulated on October 7, 2008.

13. In accordance with the agreed schedule, the Tribunal held a hearing on jurisdiction at the World Bank European Headquarters in Paris, France, on October 16-17, 2008. The parties were represented by their respective Counsels who made presentations to the Tribunal. There were no witnesses. Present at the hearing were:

Members of the Tribunal

1. Professor Hans van Houtte, President 2. Mr. Alberto Feliciani, Arbitrator 3. Mr. Fadi Moghaizel, Arbitrator

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4. Mr. Bechara S. Hatem, Counsel, Hatem, Kairouz, Moukheiber and Messihi Law Firm

5. Mr. Hadi Slim, Professeur de Droit, Consultant en Droit du Commerce Lebanon

6. Mrs. Mireille Rached, Counsel, Nabil B. Abdel-Malek Law Offices 7. Mr. Joseph Bsaibes, Counsel, Nabil B. Abdel-Malek Law Offices

14. After the hearing, the Tribunal started to deliberate on the case. However, as both parties had not yet paid their share of the advance payment on arbitration costs requested by the Centre on September 29, 2008, in spite of several oral and written reminders, the deliberations had to be suspended. After Lebanon and thereafter Toto paid their respective shares of the advance, the deliberations could be resumed by the Tribunal and completed on June 15, 2008, leading to a decision which is reported herein.

II. THE DISPUTE

15. For the purpose of this Decision on Jurisdiction, the Tribunal does not need to provide a detailed description of the factual background of the dispute between the parties. The Tribunal shall limit the scope of its decision to the jurisdiction issue and summarize the facts that are pertinent in that regard. Such summary, however, is not to be taken as prejudging in any way the issues of fact or law considered by this Tribunal.

16. The dispute arose from a Contract dated 11 December 1997 entered into between the Lebanese Republic - Conseil Executif des Grands Projets, on one hand, and Toto Costruzioni Generali S.p.A., on the other hand, in the context of the construction of a portion of the Arab Highway linking, inter alia, Beirut to Damascus. Pursuant to the Contract, Toto undertook to build the section of the Arab Highway identified as the "Hadath Highway-Syrian Border-Saoufar-Mdeirej Section."

17. Toto alleges that the Lebanese Government and first the Conseil Executif des Grands Projets (the "CEGP"), and later its successor, the Council for Development and Reconstruction

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(the "CDR"), acting on behalf of the Government, created numerous problems for Toto and/or refused to adopt adequate corrective measures. These actions and omissions, according to Toto, caused material damage to the construction of the Highway, jeopardized Toto's investment in Lebanon, and had, and are still having, a direct negative impact on the reputation of the Toto group. Toto seeks an award of damages for breaches of the Treaty and payment for moral prejudice.

18. Although the Contract set a start date of February, 10, 1998, and a completion date of October, 24, 1999, for the execution of the works, i.e. a time-span of 20 months, the formal contractual time contemplated for completion was 18 months, with December, January and February being considered as one month because of weather conditions. Moreover, the Contract provided for a post-completion maintenance period of 12 months. The total contractually-provided time (including the maintenance and guarantee period) thus ended on 24 October 2000, i.e., 12 months after the contractual construction completion date. However, the actual construction was only completed in December 2003 and the project was handed over after the 12 month maintenance and guarantee period in December 2004. 1

19. Between 1997 and 2003, various claims were submitted by Toto to the CEPG and its successor the CDR. Such claims covered (a) additional costs due to changes in legislation leading to (i) change in customs duties, (ii) increase of the price of diesel, (iii) increase in government fees on cement, and (iv) increase in aggregates prices; (b) increase in the price of bitumen due to delayed execution; ( c) additional works due to misleading information; ( d) loss of productivity due to unforeseen circumstances; ( e) additional costs occasioned by the nature of the soil not meeting the qualifications originally set in the Contract; (f) additional works resulting from a change in the design; (g) delayed site possession and expropriation and unforeseen works; and (h) extra works due to damages caused by third parties on site.

20. In August 2001, Toto filed two claims before the Conseil d'Etat (the Lebanese Administrative Court). Pursuantto the first claim, submitted on August 1, 2001, Toto requested to be indemnified for unforeseen works it had to carry out because the nature of soil did not meet the specifications set out in the Contract. Pursuant to the second claim, submitted on August 24, 1 _{Request of Arbitration, p. 12.}

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2001, Toto requested to be indemnified for additional works it had to carry out because the design specified in the Contract had been substantially changed.

21. On June 30, 2004, Toto addressed a letter to Lebanon extending an invitation to negotiations between the parties for possible settlement as per Article 7 of the Treaty ( cited in paragraph 24 infra) and, in the alternative, requesting arbitration. On August 18, 2004, Lebanon informed Toto that the CDR's Board of Directors had appointed its President to carry out the negotiations.

22. In October 2004, a new Lebanese Government came into power and decided to nominate a new Board of Directors for the CDR. The new Board was effectively appointed in December 2004.

23. On May 11, 2005, Toto attempted to restart the negotiations, addressing a letter to the new President of the CDR's Board of Directors. Toto did not receive an answer to this second request for negotiations. According to Toto, up to its filing of the Request for Arbitration in March 2007, it continuously tried to negotiate a settlement but remained unsuccessful.

24. By its Request for Arbitration, Toto submitted the dispute to ICSID arbitration m accordance with Article 36 of the ICSID Convention and on the basis of Article 7 of the Treaty which states:

I. In case of disputes regarding investments between a Contracting Party and an investor of the other Contracting Party, consultations will take place between the Parties concerned with a view to solving the case, as far as possible, amicably.

2. If these consultations do not result in a solution within six, months from the date of written request for settlement, the investor may

submit the dispute, at his choice, for settlement to:

a)

b) the International Center ~r;ic) for Settlement of Investment Disputes (ICSJD) provided for by the Convention on the Settlement of Investment Disputes between States and Nationals of the other States, opened for signature at

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c)

Washington, on March 18, 1965, in case both Contracting Parties have become members of this Convention; or

25. In its Request for Arbitration, Toto alleged various breaches of the Treaty by Lebanon, such as changing the regulatory framework; delaying or failing to carry out the necessary expropriations; failing to deliver sites; failing to protect Toto's legal possession; and giving erroneous design information and instructions. Moreover, Toto asserts that the fact that the Lebanese Conseil d 'Etat had not yet decided on the two cases pending before it, from August 2, 2001, to the date of submission of the Request for the Arbitration, constitutes a denial of justice.

26. As a result of the alleged breaches, Toto submits the following request for relief:

IO.I. The Claimant respectfully requests an award in its favour

10.1.1.

10.1.2.

Declaring that the Respondent has breached its legal obligations under the BIT, thus jeopardizing the Investment made by the · Claimant through the Contract and caused damages to said Investment;

Directing the Respondent to indemnify the Claimant for all material damages set below, caused to its Investment as a result of BIT breaches for a total amount of L.P /41,199,514,712.59/ (i.e. US$ /27,320, 633.10/):

10.1.2.1.

10.1.2.2.

10.1.2.3.

Damages suffered by the Claimant due to additional costs and charges occasioned by the change of legislations after the submission of the tender amounting to L.P /1,016,076,098/ (i.e. US$ /673, 790.52/);

Damages suffered by the Claimant as a result of the delays it faced during the execution of the Project which were totally beyond its control and which amounted to L.P. /15,289, 737,554/ (i.e. US$ /10,139,083.26/);

Damages suffered by the Claimant for extra works and

charges due to erroneous instructions, misleading

information, and errors in Design for a total amount of L.P /5, 782,357,809/ (i.e. US$ 13,834,454. 78/);

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10.1.3.

10.1.4.

10.1.2.4.

10.1.2.5.

10.1.2.6.

Interests on payments received from the Respondent but which were received after their due date and amounting to L.P/807,799,237/ (i.e. US$/535,675.89/);

Interests on the amounts claimed under this Request from the issuing date of each unpaid claim calculated on the basis of the legal rate applicable in Lebanon, which is 9%,

and until December 3

r',

2006, amounting to L.P

/10,976,833,391.23/ (i.e. US$ /7,279,067.24/), plus

additional interests until the date of final effective payment; Losses suffered by the Claimant depriving it from new investment opportunities calculated at the rate of 8% per year starting from the date the last claim was duly submitted i.e.from December 19, 2002 until December

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2006 and amounting to L.P 17,326,710,623.361 (i.e. US$ /4,858,561.42/);

Directing the Respondent to pay the Claimant for moral prejudice suffered by the latter as a result of all the hassle calculated at the rate of 10% of the main Contract value for an amount of L.P /6,048,403,161.90/ (i.e. US$ /4,010,877.43/);

Directing the Respondent to pay the Claimant the arbitration and arbitrators' fees and expenses as will be substantiated later on, as well as the Claimant's attorneys fees;

10.2. Ordering any such further relief as may be available and appropriate in the cir cums lances.

III. SUMMARY OF THE PARTIES' SUBMISSIONS ON JURISDICTION

27. The submissions of the parties can be briefly summarized as follows, without prejudice or limitation of their actual content, which has been considered in details by the Tribunal:

A. Lebanon's Memorial on Jurisdiction

28. Lebanon argues that the claims made by Toto fall outside the jurisdiction of ICSID, asserting that the building of the Arab Highway is not an investment as intended in the ICSID Convention, that Toto was not entitled to invoke Article 7(2) of the Treaty to submit claims to an ICSID arbitral tribunal, that Lebanon had not committed breaches of the Treaty and is not directly a party to the Contract, and that the claims are contractual claims and not Treaty claims.

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29. Lebanon asserts that the dispute settlement clause stated in the Contract has priority over the general jurisdiction clause contained in the Treaty.

30. According to Lebanon's Memorial, Toto's choice to submit to the Lebanese Courts the disputes arising out of the Contract is final under Article V .1.2 of the Cahier des Clauses Juridiques et Administratives, which is part of the Contract and precludes Toto from resorting to ICSID arbitration.

31. Lebanon stresses that the Treaty entered into force in February 2000 and, under its Article 10, does not apply to disputes that have arisen before that date. In addition, Lebanon adhered to the ICSID Convention only in 2003 thus excluding to submit to ICSID all the disputes for alleged breaches that had arisen before the ICSID Convention entered into force.

B. Toto's Counter-Memorial on Jurisdiction

32. Toto, in its Counter-Memorial, infers that, notwithstanding the dispute settlement mechanism provided for in the Contract, the Treaty provisions and the ICSID Convention entitle referral of the dispute to an IC SID arbitration panel.

33. According to Toto's Counter-Memorial, Lebanon was a direct party to the Contract and the alleged breaches are to be considered as Treaty breaches because they relate to public works, which implies the exercise of puissance publique.

34. Toto rejects Lebanon's position of lack of jurisdiction rationae temporis of the Tribunal, asserting that Article 10 of the Treaty gives retroactive effect to the IC SID Convention.

C. Lebanon's Reply on Jurisdiction

35. Lebanon reaffirms that the alleged claims have to be treated as contractual ones and not as Treaty breaches.

36. Lebanon argues that Toto did not point to any action taken by Lebanon which can be considered as discriminatory.

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37. Lebanon asks the Tribunal to grant relief only for Treaty breaches, if any, and not for damages resulting from any other breaches.

38. According to Lebanon, Lebanon is not a party to the Contract because it was entered into between Toto and the CDR, a council with separate legal personality from the State.

39. Lebanon reiterates that the claims set forth in the Request are essentially contractual in nature. Thus, the agreement between Toto and the CDR to submit their disputes to the Lebanese courts should prevail over the general dispute settlement provisions of the Treaty.

40. Lebanon asserts that ICSID arbitration would be premature until Toto's contractual claims are decided by the competent Lebanese courts.

D. Toto's Rejoinder on Jurisdiction

41. Toto in its Rejoinder on Jurisdiction denies Lebanon's assertions, reiterates its assertion of the Tribunal's jurisdiction over the dispute as submitted in the Request and makes reference to and confirms all arguments set out in the Request for Arbitration and in the Counter-Memorial.

IV. ANALYSIS OF ARGUMENTS

42. In its analysis, the Tribunal has determined the points that must be studied in accordance with the claims submitted by Toto and with Lebanon's response. For every point, the Tribunal has summarized the position of the two parties to the arbitration and then stated its decision with due regard to the arguments put forward by each of them.

A. Relationship between the CEGP and its successor, the CDR, and the State of Lebanon

43. The Republic of Lebanon, which is the Respondent in the present arbitration, 1s a Contracting Party to the Treaty on which the jurisdiction of the Tribunal is based as well as a Contracting Party to the ICSID Convention, under which rules the arbitration proceedings are conducted. However, Toto concluded the contract, which lies at the origin of the dispute, with the CEGP, later succeeded by the CDR, and the claims follow from acts and omissions of the

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CEGP and the CDR. Lebanon will only be held responsible under the Treaty for ·such acts and omissions that can be attributed to Lebanon.

44. The principal rule of international law on attribution are presently reflected in Articles 4 and 5 of the International Law Commission's ("ILC") Draft Articles on Responsibility of States for Internationally. Wrongful Acts, 2001 ("Draft Articles").

Article 4 reads:

Conduct of organs of a State

The conduct of any State organ shall be considered an act of that State under international law, whether the organ exercises legislative, executive, judicial or any other functions, whatever position it holds in the organization of the State, and whatever its character as an organ of the central Government or of a territorial unit of the State.

Article 5 reads :

Conduct of persons or entities exercising elements of governmental authority

The conduct of a person or entity which is not an organ of the State under Article 4 but which is empowered by the law of that State to exercise elements of the governmental authority shall be considered an act of the State under international law, provided the person or entity is acting in that capacity in the particular instance.

Consequently, the Tribunal has to detern1ine whether the CEGP and the CDR ar~ State organs or entities exercising governmental authority as defined above.

45. In the event the domestic law of Lebanon would consider the CEGP and/or the CDR as State organs, they would unquestionably have the status of State organs under international law. Indeed, under Article 4.2 of the ILC Draft Articles, "[ a ]n organ includes any person or entity

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46. In the event that Lebanese law would not give the CEGP and/or the CDR the status of State organs, the Tribunal will have to examine whether these bodies exercise executive or any other functions of the Republic of Lebanon, as required under Article 4.1 of the ILC Draft Articles. The circumstances in which the CEGP and/or the CDR would be considered separate entities pursuant to Lebanese law would be irrelevant in this context: a State cannot escape international responsibility by delegating its State functions to entities to which it gives separate legal personality under its domestic law. 2

4 7. If the CEGP and/or the CDR do not have the status of State organs under Lebanese law, but they exercise some of the functions of governmental authority, enumerated in Article 4.1 of the ILC Draft Articles, their acts and/or omissions in the exercise of governmental authority would still be attributable to Lebanon under the principle formulated in Article 5 of the ILC Draft Articles.

The Tribunal will now examine to which extent these principles apply in the case at stake and make the acts and/or omissions of the CEGP and the CDR attributable to Lebanon.

Toto's Position

48. Toto argues that the CEGP was fully controlled by the Government of Lebanon through the Ministry of Public Works and Transport. The CEGP undertook only public works projects entrusted to it by the Council of Ministers of the Lebanese Government. Moreover, the President and Board of Directors of the CEGP were appointed by decree of the Council of Ministers and its funding came mainly from the State budget.

49. Toto adds that, following the merger by absorption of the CEGP by the CDR, the CDR replaced the Ministry of Planning and became the successor of the CEPG in all its rights and obligations, including the Contract in the matter at hand. The CDR ensures the study and implementation of the public works entrusted to it by the Council of Ministers. Its President and Board of Directors are designated by the Council of Ministers. Its projects are funded by the

2 _{See K. Hober,}_{State Responsibility and Attribution, in P. Muchlinski e.a., Ed., International Investment Law,} Oxford University Press 2008, 549 at 582.

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State budget and are awarded in line with the public adjudication process. Therefore, Toto concludes that the CEGP and, later, the CDR are two entities acting on behalf of the Republic of Lebanon to carry out public works projects decided by the Council of Ministers, and they thus form one single entity with the State.

Lebanon 's Position

50. Lebanon contends that it is not a party to the Contract which was signed by the CEGP and assumed by the CDR, two independent entities that are distinct from the State. Both the CEGP and the CDR have financial and administrative autonomy. Lebanon adds that the Contract itself names the CEGP as the contacting party. The same applies to the Cahier des Charges

Juridiques et Administratives (Article 1.03) which names the CEGP as the employer. Lebanon

explains further that it does not take part in the implementation of the projects carried out by the CEGP; and later, the CDR. Lebanon concludes that the Tribunal has no jurisdiction because Article 7 of the Treaty does not apply to breaches of contracts by entities that are not the State.

Tribunal's Decision

The status of the CEGP

51. The Contract was initially made with the CEGP, which was established by Decree no. 6839 of June 15, 1961. Article 1 of this Decree provided that the CEPG is in charge of studying and implementing the projects entrusted to it by the Council of Ministers. The CEPG was attached to the Ministry of Public Works and Transport which monitored the execution of the projects entrusted to the CEPG. The CEPG had a distinct legal personality and enjoyed administrative and financial autonomy. However, it operated under the control of the aforementioned Ministry and the authority of the Council of Ministers, and was also subject to the disciplinary authority of the Central Inspectorate. The CEPG had its own funds, which originated· from the amounts allocated in the State budget to the projects to be performed by the CEPG.

52. Based on the foregoing, the CEPG, being an etablissement public administratiflinked to the Ministry of Public Works and Transport and operating under the authority of the Council of

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Ministers, was a public entity ('4personne morale de droit public") that was created and

mandated by Lebanon to exercise elements of governmental authority.

53. In brief, the CEPG, with projects funded by the State budget, and in charge of implementing the decisions of the Council of Ministers, exercised Lebanese governmental authority when it entered into the Contract with Toto. As also confirmed by Article 5 of the ILC Draft Articles, its conduct has to be considered as an act of the Lebanese state.

The Status of the CDR

54. By Law no. 295 of April 5, 2001, the CEGP was absorbed by the CDR, which assumed all the rights and obligations of the CEPG (Article l, amending Article 15 of Law no. 247 of August 7, 2000). Following the absorption, all the projects entrusted to the CEPG were transferred to the CDR including the Contract at hand, made between the CEPG and Toto in 1997. The CDR therefore became the universal successor (ayant cause universe[) to the CEPG.

The Contract made by the CEPG with Toto thus has been transferred to the CDR. In this way the CDR equally exercised elements of governmental authority of the Republic of Lebanon.

55. Moreover, as to its institutional status, the CDR is a public entity (in the form of an

etablissement public administratifJ established by Decree-Law no. 5 of January 31, 1977. It has a

legal personality and enjoys administrative and financial autonomy. It is directly attached to the Council of Ministers.

56. The CDR has two types of prerogatives. It acts autonomously, notably for the tasks of the Ministry of Planning that were transferred to the CDR when the CDR replaced the Ministry pursuant to Decree-Law no. 5 of January 31, 1977. Moreover, the CDR acts as an agent of the State.

57. The CDR acts autonomously when, as the Council of Ministers' consultant, it plans and programs development and reconstruction and elaborates the economic, social, and financial policy to attain the set objectives. 3 _{The CDR prepares the budget relating to the implementation} of the general plan that it lays down, and it ensures consistency between the State budget and the

3 _{Article 3-1 of Decree-Law no.}_5.

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general plan by giving its opinion regarding the draft of the State budget law.4 _It_{also acts as a} consulting authority for the drafting of legislation falling within the scope of development and reconstruction. 5 _{However, all the plans and projects entrusted to the CDR must finally be}

approved by the Council of Ministers.

58. The CDR, however, mainly acts as the agent and implementing authority of the Lebanese Government. Pursuant to Article 5 of Decree-Law no. 5, it is in charge of studying and implementing development and reconstruction projects. It elaborates and implements the projects included in the general plan and the successive plans as well as any development and reconstruction projects assigned to it by the Council of Ministers.

59. The CDR implements all the projects entrusted to it by the Council of Ministers in the field of reconstruction and development, in areas stricken by war or natural disasters, and areas posing a threat to public health and safety. 6 _{Through adjudication, solicitation of proposals or}

mutual agreement, it designates the public authority, public entity, municipality, mixed company, or private company which will perform the project. It represents all the public authorities and municipalities in their expropriation prerogatives: it carries out expropriations on behalf of all public authorities and municip~lities. 7 _It_{controls all the projects included in the general plan,}

the projects established by it and the projects entrusted to it by the Council of Ministers. 8 _The

funds allocated to the performance of the projects included in the plans approved by the Council of Ministers are provided for in the State budget.

60. Based on the foregoing, the Tribunal's view is that the CEGP and thereafter the CDR are exercising in the context of the Contract the governmental authority of the Republic of Lebanon, Therefore their acts are acts of the State of Lebanon, as also confirmed by Article 5 of the ILC Draft. Lebanon may be internationally liable for the acts of the CEGP and thereafter the CDR.

4 _{Article 3-2 of Decree-law no. 5.}

5 _Article_4,_paragraph₁_{ofDecree-Law no.}_5. 6 _{In line with Decree-Law no. 107 of June 30, 1977.}

7 _Article_5,_paragraph₃_{of Decree-Law no.}_5.

8 _{Article 7-1 ofDecree-Lawno. 5.}

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This means that the Tribunal has jurisdiction ratione personae pursuant to Article 7 of the Treaty for acts committed by the CEGP and the CDR.

B. Is there an Investment?

1. An investment as defined in the Treaty? Toto's Position

61. In its Request for Arbitration Toto argues that the dispute arises out of an investment as defined in the Treaty. Article 1.2 of the Treaty states:

The term "investment" means every kind of asset established or acquired by an investor of one Contracting Party in the territory of the other Contracting Party in accordance with the laws and regulations of the latter and shall include particularly, but not exclusively:

a) movable and immovable property as well as any other rights in rem, such as mortgages, liens, and pledges;

b)

c) claims to money which have been used to create an economic value or claims to any performance having an economic value;

d) intellectual property rights, such as copyrights, patents, industrial designs or models, trade or service marks, trade names, technical processes, know-how and goodwill, as well as other similar rights recognized by the laws of the Contracting Parties;

[ . .}

62. In arguing for the existence of an investment in the sense of Article 1.2 of the Treaty, Toto points out several elements:

(a) the claims for payment of amounts that were necessary "to create an economic value," i.e., major infrastructure works for the building of the Saoufar-Mdeidj section of the Arab Highway, including the construction of the highest viaduct of

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the Middle East (Treaty, Article 1.2.c ). These claims are listed in the Request for Arbitration (Section 6, p. 25) and include:

a claim for reimbursement of the extra charges incurred by. Toto as a result of a change in legislation after the submission of the tender;

a claim for payment of the cost of additional works carried out upon the request or with the approval of the Respondent;

a claim for compensation for losses incurred as a result of delays attributable to the Respondent;

a claim for compensation for extra costs resulting out of misleading information;

a claim for payment of interest on all outstanding amounts due to delayed payments during the execution of the Contract.

(b) "the industrial designs or models . . . know-how and goodwill" (Treaty, Article 1.2.d): for the execution of the construction project Toto brought in especially skilled personnel from Italy.

(c) "movable property" (Treaty, Article 1.2.a): heavy equipment, machinery and technical processes were brought in by Toto for the purpose of carrying out the project.

63. Toto contends that the Tribunal has jurisdiction because the dispute arises out of an · "investment" in the sense of the Treaty. It refers in this context to MC.I. Power Group L.C. and New Turbine inc. v. Ecuador,9 in which the Tribunal stated that elements such as duration and

risk, which some Tribunals take into account to accept the existence of a Treaty-protected investment, are not essential or required elements for the existence of an investment but rather mere illustrations.

9 _{MCI Power Group LC and New Turbine Inc v. Ecuador,}_{Award, ICSID Case n° ARB/03/6, IIC 296 (2007), 31}

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Lebanon's Position

64. Lebanon disagrees with Toto that it is sufficient that the dispute arises out of an "investment" as it is defined in the Treaty to be within the Tribunal's jurisdiction. What Toto must prove, and has failed to prove, according to Lebanon, is that the dispute arises out of an "investment" as understood in the ICSID Convention. Otherwise, the mere agreement of the parties on the scope of "investments" in a bilateral investment treaty would become the sole determinant of the IC SID jurisdiction.

65. This Tribunal agrees with Toto that in the case at hand the requirements for an "investment" as set forth in Article 1.2 of the Treaty are indeed fulfilled since an investor of Italy has established in accordance with Lebanese laws and regulations in the territory of Lebanon assets which included movable property (Article 1.2 a of the Treaty), claims to money which have been used to create an economic value or claims to any performance having an economic value (Article 1.2 c of the Treaty), and technical processes and know-how (Article 1.2 d of the Treaty).

2. An investment as per the meaning of the ICSID Convention ?

66. This being said, given that the case at hand is submitted to an ICSID Tribunal, the Tribunal agrees with Lebanon that, for this Tribunal to have jurisdiction, it is not sufficient that the dispute arises out of an investment as per the meaning of "investment" given by the parties in the Treaty, but also as per the meaning of "investment" under the IC SID Convention.

67. Article 25.1 of the ICSID Convention provides as follows:

The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment between a Contracting State (. . .) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre.

68. The ICSID Convention itself does not set forth a definition of the term "investment" which it mentions in its Article 25 as a requirement to bring a dispute within its jurisdiction. However, as Lebanon points out, its preparatory works do not suggest in any manner that by

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leaving out such a definition the founders of ICSID intended to bestow upon the Centre a jurisdiction ratione materiae without limits.

69. The notion of "investment" under the ICSID system has been clarified by legal scholars and jurisprudence. A number of legal scholars and some IC SID Tribunals follow the four criteria to be found in Salini Costruttori S.p.A. and ltalstrade S.p.A. v. Kingdom of Morocco10 _to

determine whether a transaction qualifies as an "investment" in the sense of the ICSID Convention. These four criteria, sometimes called the Salini test, comprise a) duration, b) a contribution on the part of the investor, c) a contribution to the development of the host state, and d) some risk taking.

Toto's Position

70. Although Toto, as noted above, regards compliance with the requirements of the Treaty as sufficient to determine the jurisdiction of this Tribunal, it contends that the dispute at hand relates to an "investment" also in the sense of the ICSID Convention. Toto argues that the four criteria of the Salini test are fulfilled:

the perpetuation of the contract for a certain period of time: the expected duration was 30 months (including the maintenance period), but the execution of the Project ended up taking more than five years.

a contribution by the investor: Toto brought in its own skilled personnel, heavy equipment and machinery required because the nature of the works, including the building of the highest viaduct in the Middle East. The works required indeed specialized skills and knowledge.

a substantial contribution to the State's economic development: Toto's involvement in the Project significantly contributed to the economical development of Lebanon: the highway built by Toto is part of the backbone of Lebanese economic activity, connecting Lebanon with Syria and other Arab

10 _{Salini Costruttori S.P.A. and Italstrade S.P.A. v. Kingdom of Morocco,}_{Decision on Jurisdiction, ICSID Case n°}

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countries, making Lebanon a passage way for international trade between Europe and the Middle East;

a risk: the risk stems from the nature of the Contract. Toto refers to Salini v. Morocco:

With regard to the risks incurred by the Italian companies, these flow from the nature of the contract at issue. . . . Notably, among others the risk associated with the prerogatives of the Owner permitting him to prematurely put an end to the contract, to impose variations within certain limits without changing the manner of frxing prices; the risk consisting qf the potential increase in the

cost of labour in case of modification of Moroccan law; any accident or damage caused to property during the performance of the works; those risks relating to problems of co-ordination possibly arising from the simultaneous performance of other projects; any unforeseeable incident that could not be considered as force majeure and which, therefore, would not give rise to a right to compensation; and finally those risks related to the absence of any compensation in case of increase or decrease in volume of the work load not exceeding 20% of the total contract

. 11 price.

71. Regarding the element of risk, Toto also refers to SAIP EM v. Bangladesh, 12 _{in which the}

Tribunal states that the fact that the investor receives an advance payment does not mean that it does not incur commercial risks. Moreover the exorbitant clauses that contribute to the risk element in SAIPEM v. Bangladesh also exist in the present case, where furthermore no advance payment has been received: ''the contract, the construction, the retention money, the warranty, in addition to other dispositions concerning non scheduled works, increase or decrease of the

11 _Cf._supra,_{footnote 10, para. 55.}

12 _{Saipem S.p.A. v. The People's Republic of Bangladesh,}_{ICSID Case n° ARB/05/07, Decision on Jurisdiction and}

Recommendation on provisional measures, para. 110.

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volume of works, variation of economical conditions, which are also exorbitant clauses."13 _On

each monthly payment, 10% had to be retained as retention money. 14

72. According to Lebanon, Toto failed to prove that the Project meets the definition of an "investment" for the purposes of the ICSID Convention. Lebanon does not object to the application of the Salini criteria; indeed it applies such criteria itself. However, it argues that the

Tribunal lacks jurisdiction because the dispute at hand does not arise out of an investment, since, in its view, the Contract does not involve taking risks.

73. For Lebanon, an investment requires the specific risk that the operation might not be profitable, not the general risk that some contractual obligation will not be honoured, since the latter kind of risk is inherent to any contract whatsoever. The possibility that a contractual obligation will be defaulted or that a force majeure event may occur, is not the kind of risk required to qualify the operation as an "investment" under the ICSID Convention.

74. For Lebanon a road construction contract, such as the present Contract, involves a commercial sale of goods and services and is not an "investment," since the contractor's remun-eration is guaranteed under the contract and covers the profits and estimated costs and risks. It is only when a construction contract is linked with the management of the operation, whereby the contractor's remuneration is contingent on the outcome of its management and whereby profits depend on the success of the operation that such construction contract may be considered part of an investment.

75. Lebanon points out that, in those ICSID cases in which the Tribunal had to decide on the qualification of a civil engineering contract, the contract constituted part of an entrepreneurial activity, such as the building and operation of a hotel, the construction of housing units, the

13 _{Claimant's Rejoinder, 29 August 2008, para 86. Toto refers to Exhibit 11 of its Request for Arbitration: CEDG,}

Autoroute Hadath - Frontiere Syrienne, Troncon Saoufar-Mdeirej, Cahier des Clauses Juridiques et Administratives, Articles 1-10, III-01, 111-02, III-04, IV-03.

14 _{Article IV.03 (2) of the}_{Cahier des Clauses Juridiques et Administraiives, ("Attachements et etablissement des} decomptes")

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construction and management of a hospital ward, etc. 15 _{In such cases, the risk that was taken into}

consideration for qualifying the operation as an investment under the ICSID Convention was the one associated with the chances of success of the business operation.

76. Lebanon refers to SAIPEM v. Bangladesh, in which the Tribunal considered the entire operation, including "the Contract, the construction itself, the Retention Money, the warranty, and the related ICC Arbitration,"16 _{and not just the civil construction part of it. According to} Lebanon, it was exorbitant clauses like the retention money of 10% that led the Tribunal in

SAIPEM v. Bangladesh to decide that there was a risk in the operation and to qualify it as an investment.

77. Lebanon's argument that there is no element of risk in the present case is unconvincing. The Tribunal finds, rather, that the criteria as set forth by legal scholars and jurisprudence following Salini v. Morocco are met in the present case.17

78. The Tribunal agrees with Toto that the risk stems from the nature of the contract and, as stated in Salini v. Morocco, does not require that the investor be "linked to the exploitation of the completed work."18 _{A construction contract in which the execution of the works extends over a} substantial period of time involves by definition an element of risk. 19 _{The duration of the}

15 _{AMCO v. Republic of Indonesia, ICSID case n° ARB/81/1; Holiday Inns S.A. and other v. Morocco, ICSID Case}

No. ARB/72/1; Gabon v. Societe Serete S.A., ICSID Case n° ARB/76/1; Klockner Industrie-Anlagen GmbH and

others v. United Republic ofCameroun and Societe Camerounaise des Engrais, ICSID Case n° ARB/81/1; Societe Ouest Africaine des Betons Industriels v. Senegal, IC SID Case n° ARB/82/1; MI'D Equity Sdn. Bhd. and MI'D Chile S.A. v. Republic of Chile, ICSID Case n° ARB/01/7.

16 _{Cf. supra, footnote 12, para. 110.}

17 _{This conclusion holds regardless of the discussion between the parties as to how these requirements should be}

assessed. Toto argues that the criteria as defined in the Salini v. Morocco are to be assessed globally rather than cumulatively. Toto refers to Farouk Yala, "Rapport preliminaire - La notion d' « investissement » dans la jurisprudence du CIRDI: actualite d'un critere de competence controverse", Colloque 3 mai 2004, p. 6, para. 18-19: " ... une operation d'investissement suppose la reunion de quatre elements interdependants ... ". Toto contends that "interdependent" should be translated as "interrelated" and not as "cumulative". According to Lebanon, the Tribunal in Salini v. Morocco did require the four conditions to exist cumulatively.

18 _{Cf. supra, footnote 10, para. 56.}

19 _{One might argue whether it is the expected or the actual duration of the project that should be considered, but in}

either case the criterion of duration would be passed.

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contract is a determining factor with regards to the magnitude of the risk since the exposure to changes and unexpected occurrences increases in proportion to the duration of the contract.

79. Lebanon's argument that Toto's alleged risk was covered by a "guaranteed payment" does not stand: profits and costs are seldom fully covered by a payment agreed in advance when the price has been negotiated competitively and when many unforeseen events may occur.

80. In this regard this Tribunal refers to SAIPEM v. Bangladesh, in which the Tribunal stated: "Bangladesh's argument appears to refer more to ... the fact that the investor did not incur any commercial risk because it received an advanced payment. The Tribunal cannot agree with this argument. In the present case, the undisputed stopping of the works which took place in 1991 and the necessity to renegotiate the completion date constitute examples of inherent risks in long term contracts."20

81. The Tribunal fmds that, regarding the issue of investment, the requirements for jurisdiction under the ICSID Convention are fulfilled in this case. However, the Tribunal wishes to make clear that it does not reach this conclusion strictly on the basis of the Salini test, even if it agrees with Toto that in the present case that test is met, as demonstrated above. The Tribunal deviates from this commonly followed test in a desire to delineate the necessary features of an investment in a way that it considers more appropriate to the present case.

82. It should indeed be noted that the Salini test has not been universally applied by ICSID Tribunals. An alternative set of criteria was used, for example, in an award rendered on July 24, 2008 in the ICSID case Biwater v. Tanzania,21 _{in which the Tribunal stated that there is no basis} for a "rote or overly strict" application of the test in every case:

These criteria are not fixed or mandatory as a matter of law. They do not appear in the JCSJD Convention. On the contrary, it is clear from the travaux preparatoires of the Convention that

2

°

_Cf._supra,_{footnote 12, para. 109.}

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several attempts to incorporate a dejj_nition of 'investment' were made, but ultimately did not succeed. 2

83. As stated in Biwater v. Tanzania, in the ICSID Convention the term "investment" "was left intentionally undefined, with the expectation (inter alia) that a definition could be the subject of agreement as between Contracting States."23 _And: _{"[g]iven that the Convention was not} drafted with a strict, objective, definition of 'investment', it is doubtful that arbitral tribunals sitting in individual cases should impose one such definition which would be applicable in all cases and for all purposes. "24

84. In the absence of specific criteria or definitions in the ICSID Convention, the underlying concept of investment, which is economical in nature, becomes relevant: it implies an economical operation initiated and conducted by an entrepreneur using its own financial means and at its own financial risk, with the objective of making a profit within a given period of time. It has been argued that "investment" should include some duration, e.g., a minimum duration of two years, although a shorter duration also may be conceivable, or that the investment should serve the public interest. 25

85. Additional criteria have been applied in some cases, for example, in Phoenix v. Czech Republic, in which the Tribunal added two criteria to have an "investment" under the ICSID Convention: that assets be invested in accordance with the laws of the host state and that they be invested bona fide. ·26 _{These two criteria, however, are not relevant to the case at hand.}

22_{Cf. supra, footnote 21, para. 310. In Biwater v. Tanzania the Tribunal attributes five, rather than four, criteria to}

Salini v. Morocco. These five criteria were originally suggested by the Tribunal in Fedax N. V. v. Republic of Venezuela, ICSID case ARB/96/3, Decision on Jurisdiction of July 11, 1997, 5 ICSID Rep. 183 (2002): (i) duration, (ii) regularity of profit and return, (iii) assumption of risk, (iv) substantial commitment, and (v) significance for the host State's development. Four of these criteria were taken over by the Tribunal in Salini.

23 _{Cf. supra, footnote 21, para. 312, with reference to Ch. Schreuer, The ICSID Convention: A Commentary (2001),}

p.121-125,paras. 80-88.

24 _{Cf. supra, footnote 21, para. 313.}

25 _{This is not a requirement of the ICSID Convention. See L.E.S.I. S.p.A. et Asta/di S.p.A. v. Republique algerienne}

democratique et populaire, ICSID case 05/3, Decision on Jurisdiction, July 12, 2006, para 72 (iv) : « // ne parait en revanche pas necessaire qu 'ii reponde en plus specialement a la promotion economique du pays, une condition de toute far;on difficile a etablir et implicitement couverte par /es trois elements retenus. »

26 _{Phoenix Action, Ltd. v. The Czech Republic, ICSID Case n° ARB/06/5, Award, April 15, 2009, para. 114.}

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86. In the present case, Toto's construction project meets the requirements deemed necessary by this Tribunal, i.e., a contribution by the investor, a profitability risk, a significant duration and a substantial contribution to the State's economic development, as follows:

(a) Toto used its financial means before, during, and until completion of the works. At the start of the project, organizing personnel, machineries, and materials involved expenditures. The investment remains even though the contractor receives payments during the progress of the work. Indeed, these payments are received only after the contractor has pre-financed himself the costs of personnel, machineries, and materials. Moreover, as the costs must be certified by the engineer in order to obtain payment, there is always a risk that the costs will not be approved. Furthermore, 10% of the amounts, certified by the engineer, was retained as retention money, of which half would be paid at the provisional taking over and half at the final taking over.

(b) There is no guarantee that the price paid by Lebanon, the employer, will be sufficient to cover the actual costs of the contractor for the performance of its obligations, especially since many unknown factors might intervene.

(c) Toto was involved in the investment for well over five years (and even well over six years if Toto's maintenance period is also included). Several activities were carried out during the period in order to perform its contractual obligations.

(d) The project at hand is a major construction work that will facilitate land transportation between Lebanon, Syria and other Arab countries and thus increase Lebanon's position as a transit country for goods from and to Middle East countries.

87. Thus, it is the considered conclusion of this Tribunal that the construction carried out by Toto in Lebanon was an "investment" according to Article 25 of the ICSID Convention, and as such, the disputes related to this construction qualify for the ICSID arbitration.

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C. Can Toto rely on Article 7.2.b to submit claims to an ICSID tribunal? Lebanon's Position

88. Lebanon has argued that Toto was not entitled to rely on Article 7.2.b of the Treaty to submit for settlement to an ICSID tribunal the dispute related to claims which dated from before the Treaty entered into force on February 9, 2000. Indeed, Article 10 in fine of the Treaty indicates that it "shall not apply to disputes that have arisen before its entry into force." In this context, Lebanon points out that the subject-matter of the many claims that Toto has submitted to Lebanon or its engineer between 1997 and February 9, 2000, would be excluded from the Tribunal's jurisdiction. It refers to Tradex v. Albania that stated: "[t]he term "arise" indicates that the beginning of the dispute is relevant and the term "dispute" is rather general and would usually be understood not to be restricted to a legal procedure". 27

Toto's Position

·89. For Toto, a mere claim is not a dispute. The Clauses et Conditions Genera/es ("CCG"), Articles 50 and 51, and the Cahier des Charges Particulieres, Article V.01, provided for an intricate claim system, whereby Toto, in the event it disagreed with the decision of Lebanon's engineer, had to object to the latter's position. When the engineer then replied and Toto did not agree with this reply, it had to submit a formal Memorandum to the Owner within 60 days. Then, when the Owner did not reply or did not reply satisfactorily, again within 60 days after the submission of this Memorandum, there was a dispute and Toto had to bring the claim before the appropriate jurisdiction. Mere claims are not disputes. In fact, the dispute submitted to the Tribunal arose in 2004, well after the Treaty entered into force, when it became clear that Lebanon in different ways was jeopardizing the investment and a claim had to be introduced before an ICSID arbitral tribunal.

27 _{Tradex Hellos S.A. (Greece) v. Republic of Albania, ARB 94/2, Decision on Jurisdiction, December 24, 1996, p.} 188.

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90. The Tribunal agrees that a mere demand is not a dispute. In the Tribunal's view the dispute arose on June 30, 2004, for the following reasons: The CCG, which are part of the Contract, distinguish between "difficultes" or problems (Article 50) and "contestations" or

disputes ( Article 51 ). The former arise when the engineer and the contractor have different views which need to be referred for final decision to the employer/administration. The latter implies that the contractor does not agree with the position of the employer/administration. However, in the case at stake, the CDR did not take a position so that Toto invited it on June 30, 2004, to have recourse to Article 7 of the Treaty ("Settlement of Disputes").

91. Lebanon, moreover, alleges that the Tribunal has no jurisdiction over the present dispute under the ICSID Convention as that Convention only became applicable to Lebanon in 2003, while the Agreement was concluded in 1997 and Lebanon's general offer to submit investment disputes to arbitration under the ICSID Convention, contained in Article 7 of the Treaty, became effective in 2000 with the entry into force of the Treaty.

92. However, a general offer from Lebanon, made in 2000, is only the preliminary step for the consent to submit a dispute to ICSID arbitration because it needs acceptance. In fact, this general offer was only accepted by Toto on June 30, 2004, when Toto informed Lebanon of its intention to submit the dispute to ICSID arbitration. It was thus well after the ICSID Convention entered into force, i.e., on June 30 2004, that, by, Toto's acceptance, the parties consented to submit the dispute to ICSID Arbitration.

93. Moreover, the Tribunal's jurisdiction is not affected by the fact that Lebanon has made the general offer to accept ICSID arbitration for investment disputes with Italian investors, well before the ICSID Convention entered into force for Lebanon. It is sufficient that Lebanon had offered to accept ICSID jurisdiction and that the ICSID Convention was in force at the time of the consent, i.e., on June 30, 2004. 28

28 _See_C._{Schreuer, The ICSID Convention: A Commentary, 2001, nos. 322 and 323, referring, inter alia , to} Holidays Inns v. Morocco, N° ARB 72/1, also discussed in Lalive, The First 'World Bank' Arbitration, 1 ICSID Reports 645.

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94. With respect to Lebanon's argument that Article 25(1) of the ICSID Convention requires a written consent of the parties to submit the dispute to ICSID, the Tribunal considers that such consent has been given by Lebanon in its written offer to accept ICSID's jurisdiction under Article 7.2 of the Treaty, and by Toto pursuant to its letter of June 30, 2004 and its actual submission of the Request for Arbitration.

D. Breach of Article 2 of the Treaty: Failure to Promote and Protect the Claimant's Investment

95. Toto argues that the Tribunal has jurisdiction over Lebanon's failure to promote and protect its investment in breach of Article 2 of the Treaty, which provides:

1. Each Contracting Party shall in its territory promote investments by investors of the other Contracting Party and admit such investments in accordance with its laws and regulations.

2. Each Contracting Party, in accordance with its laws and

regulations, shall allow the investor to engage top managerial and technical personnel of his choice, regardless of nationality and grant the related permits.

3. Each Contracting Party shall protect within its territory

investments made in accordance with its laws and regulations by investors of the other Contracting Party and shall not impair by unreasonable or discriminatory measures the management, maintenance, use, enjoyment, extension, sale or liquidation of such investments. In particular, each Contracting Party or its competent authorities shall issue the necessary permits mentioned in paragraph 2 of this Article.

4. Each Contracting Party shall create and maintain, in its territory favourable economic and legal conditions in order to ensure the

effective application of this Agreement.

96. Toto has claimed that Lebanon, exercising its sovereign authority, has failed to protect its investment, in breach of Article 2 of the Treaty, by:

a. delaying the necessary expropriation required under the contract to enable the Claimant to take possession of the site;

b. failing to deliver major sites due to presence of Syrian troops in the area;

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c. failing to protect legal possession due to problems with occupants who opposed leaving the expropriated properties;

d. providing erroneous instructions, misleading information, and errors in design;

e. changing the regulatory framework in which the investment was made29 ; and

f. changing legislations after the submission of the tender.

1. Delay in expropriation

Toto's Position

97. The Government of Lebanon, according to Toto, failed to carry out the required site expropriations in order to deliver the sites, a responsibility under Lebanese law of the Government in the exercise of its prerogatives. This failure adversely affected Toto's investment, in breach of Article 2 of the Treaty.

98. Contrary to what Lebanon alleges in its Reply, the delay to carry out the necessary expropriations is distinct from the delay to deliver the sites. The expropriation is a legal measure that can be carried out notwithstanding the factual situation of the expropriated parcels, i.e., notwithstanding the fact that the expropriated parcels are occupied by squatters or by army troops.

99. Toto does not claim specific compensation because of delays in expropriation. It claims a total amount of US$10,139,083.26 to cover damages suffered as a result of all the delays it faced ( due to delay in expropriation, failure to protect legal possession, etc.) that were beyond its control.

100. Lebanon argues that the alleged delay to carry out the expropriations does not constitute a breach of the Treaty because it concerns the performance of the works, required under the Contract. Consequently it is a pure contractual claim and is not covered by the Treaty. Although 29 _{Sometimes Toto refers to a "change of the regulatory framework," sometimes "changes in the legal framework}

INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES WASHINGTON, D.C. In the matter between. TOTO COSTRUZIONI GENERALI S.P.A.

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